March 5 (Bloomberg) -- The yen strengthened for a second
day versus the dollar amid speculation the Bank of Japan’s
policy board will refrain from adding stimulus when it convenes
for a two-day meeting starting tomorrow.

The Japanese currency rose against most of its 16 major
peers after Keisuke Tsumura, a lawmaker from Japan’s opposition
Democratic Party, said he can’t accept Kikuo Iwata, one of Prime
Minister Shinzo Abe’s candidates, as deputy governor of the BOJ.
Iwata previously said in parliament that the central bank must
expand its monetary base and buy longer-maturity bonds.
Australia’s currency climbed versus the dollar as the Reserve
Bank kept interest rates on hold.

“The member of the Democratic Party in Japan saying he
can’t support support Mr. Iwata is why we’re seeing a correction
in dollar-yen,” Sireen Harajli, a foreign-exchange strategist
in New York at Credit Agricole SA, said in a telephone
interview. “The yen has also been benefiting from safe-haven
flows.”

The yen appreciated 0.4 percent to 93.14 per dollar as of
9:51 a.m. New York time. It strengthened 0.2 percent to 121.59
per euro, after earlier rising as much as 0.6 percent. The euro
rose 0.2 percent to $1.3053.

Options Data

Options traders are the least bearish on the yen since Nov.
14, according to 25-delta option risk reversal rates. Traders
are paying a 0.48 percent premium for yen puts, or the right to
sell the Japanese currency versus the dollar, relative to calls,
which allow for purchases. That is down from the 2012 high of
1.50 percent reached on Dec. 13.

The Swedish krona climbed to its strongest level in six
months versus the euro after Stockholm-based Swedbank said an
index based on responses from about 200 purchasing managers in
the services industry was a seasonally adjusted 54.6 in February
compared with a revised 52.6 the previous month.

The krona appreciated 0.4 percent to 8.3208 per euro, after
reaching the strongest since Sept. 3, and gained 0.6 percent to
6.3748 per dollar.

South Korea’s won strengthened the most in a month as
exporters repatriated income following the currency’s biggest
loss since Feb. 1 yesterday. The currency rose 0.6 percent to
1,087.04 per dollar after adding as much as 0.7 percent, its
biggest increase since Feb. 4.

Forint Falls

The Hungarian forint fell versus its 31 major counterparts
on speculation the country’s government will use expanded powers
at the central bank to deplete foreign-currency reserves. It
declined 0.2 percent to 229.48 per dollar after weakening to
230.03, its lowest level since Sept. 6.

The yen weakened 10.8 percent in the past three months, the
worst performer among 10 developed market currencies measured by
Bloomberg Correlation-Weighted Indexes. It has dropped amid
speculation Abe’s push to expand stimulus will debase the
currency. The prime minister’s nomination for the next BOJ
governor, Haruhiko Kuroda, said yesterday the central bank will
do whatever is needed to end 15 years of deflation.

“The BOJ are not expected to do anything before leadership
transition,” said Lee Hardman, a currency strategist at Bank of
Tokyo-Mitsubishi UFJ Ltd. in London. The yen’s lack of reaction
to Iwata’s comments “is perhaps an indication that the time for
talking is now over,” he said.

Aussie Rebound

The so-called Aussie rose from an almost eight-month low
reached yesterday after Australia’s Reserve Bank left its
overnight cash-rate unchanged at 3 percent.

Governor Glenn Stevens said in a statement that growth in
2012 was led by “very large increases in capital spending in
the resources sector,” while reiterating that the inflation
outlook “would afford scope to ease policy further, should that
be necessary.”

“The RBA was a little bit more upbeat on the outlook for
capital expenditure and it continued to say that past easing is
having an impact on the economy,” said Khoon Goh, a Singapore-based foreign-exchange strategist at Australia & New Zealand
Banking Group Ltd. “The market has taken Stevens’s comments on
resources spending positively and that’s why we’ve seen the
Aussie move higher.”

The Aussie snapped a three-day decline versus the dollar,
gaining 0.5 percent to $1.0245. It dropped to $1.0115 yesterday,
the lowest since July 12.

European Economy

The euro gained against the dollar after an index showed
manufacturing and services in the 17-nation region contracted
less than economists forecast in February.

A composite gauge of euro-area services and manufacturing
output was 47.9 in February, versus 48.6 in January, London-based Markit Economics said in a report today. Analysts had
forecast a drop to 47.3, according to the median of 19 estimates
in a Bloomberg News survey.

Europe’s shared currency appreciated versus the Swiss franc
as Italian bonds rose after European finance ministers meeting
in Brussels yesterday said some nations may be able to loosen
targets for the reduction of their deficits.

Strains “may also justify in a certain number of cases
reviewing deadlines for the correction of excessive deficits,”
European Union Economic Affairs and Monetary Commissioner Olli
Rehn said yesterday in Brussels.